By R. Jason Howard, J.D.
The SEC has voted to modernize a 22-year-old rule by adopting amendments that apply to when investment advisers who provide advisory services exclusively over the internet can register with the SEC.
In July 2023, the Commission voted 5-0 to issue the internet advisers proposal and, at that time, SEC Chair Gary Gensler explained that in 2002 the SEC granted a narrow exception allowing internet-based advisers to register with the Commission instead of with the states. But in 21 years a lot has changed, and the 2002 exemption created gaps in 2023. The changes, according to a recent statement by the Chair, better reflect what it means in 2024 to provide an exclusively internet-based service and will “better align registration requirements with modern technology and help the Commission in the efficient and effective oversight of registered investment advisers.”
According to the SEC press release, the final rule will require an investment adviser who relies on the internet adviser exemption “to have at all times an operational interactive website through which the adviser provides digital investment advisory services on an ongoing basis to more than one client.” In addition, the amendments will eliminate the current rule’s “de minimis exception for non-internet clients, thus requiring an internet investment adviser to provide advice to all of its clients exclusively through an operational interactive website.”
In connection with the adoption of the final rule, the SEC has released a Fact Sheet which, among other things, explains that compliance with the rule, including the requirement to amend Form ADV to include a representation that the adviser is eligible to register with the Commission under the internet adviser exemption, must be done by March 31, 2025.
Advisers that are no longer eligible to rely on the amended exemption and that do not otherwise have a basis for registration with the Commission must register in one or more states and withdraw registration with the Commission by filing Form ADV-W by June 29, 2025.